How big tobacco got its way in Florida Legislature

Sunday

Dec 30, 2012 at 12:47 AM

Matt Dixon

TALLAHASSEE | It was February 2009, and things were looking good for the tobacco industry.

"There are an estimated 60 million adult consumers participating in the total tobacco space in the United States," said MichaelSzymanczyk, CEO and chairman of the Altria Group, one of the world's largest tobacco companies. "These adult consumers spent an estimated $80 billion on tobacco products at retail in 2008, an amount that has been increasing over the past few years."

His message during a conference at the posh Boca Raton Club and Resort was in the industry's public statements and filings with regulatory authorities. It's not what was being told to Florida lawmakers.

In 2009, tobacco lobbyists aggressively pushed a bill that drastically capped the amount four tobacco companies have to pay to appeal certain court judgments against them. In most cases, to appeal a ruling a bond for the full amount of the judgment, plus interest, is paid to the clerk's office in the judicial circuit where the case is being tried.

Appeal bonds are used to discourage frivolous appeals, for which taxpayers pay extra court costs and plaintiffs extra legal fees.

The bill, SB 2198, passed with overwhelming support in the Legislature and was signed by then-Gov. Charlie Crist.

Including interest, the law has saved tobacco companies nearly $400 million in legal costs since 2010. Industry lobbyists argued the bill was for the state's own good.

"For the financial health of the state, it is essential to pass SB 2198," read a set of March 12, 2009, talking points prepared by industry lobbyists and circulated to lawmakers. That document, which carried the handwritten note "from tobacco lobby," was dated 22 days after Szymanczyk's glowing comments in Boca Raton.

Industry officials said that if some companies were bankrupted by thousands of Florida lawsuits, they could not make the nearly $400 million annual payments to the state as part of the 1999 tobacco settlement agreement.

The bill was shepherded through the Legislature by Sen. Mike Haridopolos, R-Merritt Island.

"Our understanding was everyone's primary goal was not risking the tobacco settlement money," said Haridopolos in a recent interview.

He recently finished up a two-year term as Senate president and is no longer a lawmaker.

The legislation publicly carried Haridopolos' name but was largely shaped by the industry it has financially benefited. A five month Times-Union investigation found:

¦ Keith Teel, one of the industry's top Washington lobbyists, wrote and submitted versions of the legislation that were filed.

¦ Senate staff working on the bill repeatedly went to Teel for advice and proposed changes.

¦ The four companies involved have averaged between $51 million and $3.8 billion in annual net income since 2008. They have collectively paid an estimated $90 million in related court judgments.

¦ Since 2008, the state paid for Hardiopolos to take 57 flights on the private jet of Guy Spearman, a longtime industry lobbyist who helped negotiate the bill. The plane is known as "Air Spearman" among Florida politicians.

¦ Before the bill passed, Senate attorneys warned it could make it look like lawmakers were working "too closely with tobacco companies."

The bill was opposed by the Florida Justice Association, which argued that the industry did not need the cap and simply wanted to make it cheaper to appeal. Continued appeals make it more difficult for plaintiffs, often lifelong smokers with severe health issues, to continue a lawsuit.

The logic is not unfounded.

A "confidential" memo sent by tobacco attorney Mike Jordan in 1988 laid out his team's philosophy after a plaintiff dropped a Pinellas County case against Reynolds American.

"To paraphrase General Patton, the way we won these cases was not by spending all of Reynolds' money," the memo read, "but by making that other son of a bitch spend all of his."

ENGLE CLASS

In 2000, a jury awarded $145 billion to an estimated 100,000 smokers who had filed a class-action suit against the industry. The group was known as the Engle Class, after lead plaintiff Howard Engle.

Three years later, a Miami appeals court tossed the judgment because it said the group began smoking for different reasons and could not "certify" as a class. The Florida Supreme Court upheld that ruling but said individual plaintiffs could sue.

The ruling created roughly 7,000 separate suits brought by more than 8,000 individuals. That was the catalyst for Engle companies - Reynolds American, Altria, Liggett, and Lorillard - to seek an appeal bond cap.

"[T]he cumulative appeal bond requirement could be enormous … and thus undermine the state's continued receipt of tobacco settlement payments," the March 2009 talking points read.

John Mills, a Jacksonville attorney now practicing in Tallahassee who was involved in several of the cases, says the logistics of thousands of judgments coming down at once is nearly impossible.

"These are very expensive cases to try, so just because a firm has some in its inventory does not mean it can try it," he said. "Even if they could, the courts can't handle that many cases."

He estimates that so far the four companies have paid $90 million in judgments related to Engle cases. There are $471 million in judgements currently pending, state records show. Excluding interest, the companies have paid $145 million to appeal those rulings.

"No one ever really believed the Engle cases would put the industry in financial jeopardy," he said.

Haridopolos said he relied on a February 2009 opinion by then-Attorney General Bill McCollum that concluded the proposed cap "would appear to support the state's interest of preserving the value of the tobacco settlements."

"When we have attorney generals telling us the money is in danger, we needed to do something," he said.

A spokesman for Altria said his company views the cap as a good balance.

A Liggett spokesman declined comment, and the remaining Engle companies did not return requests seeking comment.

THE SAVINGS

Along with a $200 million overall cap, the legislation also included caps for individual judgments. For a company's first 40 appeals the cap is $5 million no matter how large the judgment.

The biggest example of savings a company saw from this cap came after a Levy County judgment. Reynolds America paid $5 million, the most required under the law, to appeal a $79 million judgment. In most cases, a company would have to pay the full amount to a local clerk's office, plus interest, to appeal.

The North Carolina-based company, whose brands include Camel, has put up $110 million to appeal $365 million in adverse judgments. It has paid $43.5 million, the most of any Engle company.

Reynolds American has averaged $1.1 billion in net income since 2009 and paid investors $3.1 billion in dividends over that time.

Altria, the world's largest tobacco company, has averaged $3.8 billion in annual net income since 2008 and paid $13.5 billion in dividends to investors since, according to filings with the Securities and Exchange Commission. Phillip Morris, the company's subsidiary, has paid $3 million in Engle-related judgments, according to numbers Mills compiled.

The company, which owns the Marlboro cigarettes brand, has put up $30 million to appeal $97 million worth of judgments against it, according to records on file with the Florida Supreme Court.

In Duval County, only one appeal has been impacted by the cap. Lorillard paid $5 million to appeal a $15 million judgement against the company. Jacksonville has eight other appeals worth $7 million since the cap became law.

THE POLITICS

Early in the 2009 session, it became clear the tobacco industry was going to make a push for appeal bond cap legislation.

To hash out the details, then-Senate President Jeff Atwater, R-North Palm Beach, tapped Haridopolos for the Republicans and former state Sen. Dave Aronberg of West Palm Beach for the Democrats to lead negotiations.

"It was such a high-level issue that you actually had a senator get involved to mediate a dispute between the lobbyists. That doesn't happen often," Jess said.

The industry originally wanted a $100 million appeal bond cap, but that was boosted to $200 million during negotiations. In addition, the 2009 bill included a provision that would allow the cap to expire in 2012.

It ended up being a hollow victory.

During last-minute budget negotiations in 2011, Haridopolos slipped 11 lines into a 56-page bill dealing with Medicaid that removed the sunset clause.

"The reason the sunset provision was drawn for 2012, is they knew Sen. Haridopolos would still be Senate president through 2012," Jess said.

The bill passed and was signed by Gov. Rick Scott. When asked about the provision, his press office sent a brief statement ignoring specific questions about whether he knew the sunset removal was in the legislation or if Scott supported appeal bond caps for tobacco companies.

Haridopolos says he does not remember "how it all played out" in 2011, but the sunset was removed for one reason.

"In 2011, we had to make some gut-wrenching budget cuts," he said. "When this was brought to our attention we thought we could not jeopardize the tobacco money."

Atwater, who is now Florida's CFO, did not answer specific questions about the bill. His office sent a statement saying it was his job "to ensure that the legislation properly went through the committee process."

Crist and Aronberg, who was elected Palm Beach County State Attorney last month, did not return requests seeking comment.

In a list of the bill's "pros" and "cons," Richard Herring, special counsel to Atwater, said the bill was bad political optics.

"The bond limit protects the tobacco companies," he wrote, "… so the Legislature could be criticized for working too closely with tobacco companies."

Matt Dixon: (904) 716-8789

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